Maine operators cheered by potential defeat of cocktail tax

AUGUSTA, MAINE -- As the 120th session of the Maine Legislature comes to a close, restaurateurs statewide are celebrating their presumed defeat of a higher alcohol tax, even as some operators prepare to pay higher meals and lodging taxes.

While lawmakers had not cast their final votes at presstime, the state's restaurant industry appears to have scuttled a so-called cocktail tax. It would have raised the tax rate on on-premises alcoholic beverages from 7 percent to 10 percent. The funds were earmarked for a program aimed at aiding victims of domestic violence.

Meanwhile, a measure that would require operators who do not have liquor licenses to pay a 7-percent meals and lodging tax seemed destined to become law. Those operators currently pay a 5-percent sales tax, while operators who serve alcohol already pay the 7-percent meals and lodging tax. The revenue would be put toward increased tourism funding.

"The taxation committee of the Legislature thought it would be a great idea to level the playing field and raise fifteen million dollars," said Dick Grotton, executive director of the Maine Restaurant Association. "They want to spend six million dollars to promote tourism and the remainder for municipal revenue sharing."

Grotton noted that if both measures passed and were signed into law, foodservice operators would be faced with four levels of taxation.

"You would have no tax at all on food items, a 5-percent sales tax on normal commodities, a 7-percent tax on meals and a 10-percent tax on drinks," he said.

While the proposal to tax all prepared meals at 7 percent had "split our industry, because half of my membership would be affected by the increase and the other half is already at the higher 7-percent rate," operators were unanimous in their opposition to the proposed "cocktail tax," Grotton said.

He added that Maine's restaurateurs were not opposed to the bill, known as the Violence Intervention and Prevention Act, merely the proposed method of financing it. Grotton noted that the bill easily had passed both houses of the Legislature with no funding mechanism in place.

"We all understand what a grievous thing it is for women and children to be in any domestic violence situation -- that's not the issue," Grotton said. "The issue is that all of the people who voted for this wonderful plan don't want to pay for it."

Restaurant operators had a powerful ally against the cocktail tax in Maine's governor, Angus King.

"The governor has expressed real concerns about implementing another tax increase," said John Ripley, King's director of communications. "He supports the program, just not that way of funding it. He believes the money for the program should come from money already set aside for projects." Ripley added that it "was unlikely" the governor would sign a bill with the cocktail tax attached.

The combination of grassroots resistance by restaurant operators and the governor's opposition seems to have stalled the cocktail tax for the time being. According to Hayla Hall, director of communications for the bill's sponsor, House Majority Leader Patrick Colwell, D-Gardner, alternative financing methods are being explored.

"At this point they are going to be funding [the bill] from the general fund," Hall said. "It is not going to be fully funded for several years. There is not going to be a tax increase on alcohol."

The fate of the proposal to raise the tax on all prepared food from 5 percent to 7 percent is less clear, but supporters and opponents anticipate its passage.

The movement to equalize the tax rate on all meals had its origin in a request for additional funding for tourism advertising, according to Vaughn Stinson, executive director of the Maine Tourism Association.

"Maine currently ranks 41st out of 50 states in spending to promote tourism," Stinson explained. "The current tourism budget is around four million dollars, and our research shows that it needs to be more toward the nine-million-dollar mark to be effective."

Stinson said that after approaching the Legislature for additional funding and being rebuffed, his association approached the governor, who asked if the tourism industry would "tolerate an additional tax on it if we earmarked x-amount of dollars and dedicated them" toward promotion and advertising.

After "a lot of wailing and rending of garments," the Maine Tourism Association and the Maine Innkeepers Association agreed, Stinson said.

Originally, the governor had proposed funding tourism promotion through a 0.5-percent rate hike in the 7-percent meals and lodging tax, Stinson explained. However, the proposal "got kicked around," and the Legislature decided instead to leave the meals and lodging tax rate at 7 percent but impose it on all foodservice establishments.

"I don't prefer any tax increase, but this levels the playing field," Stinson said. "Currently, if you go to a fine-dining restaurant in Maine -- say you have breakfast, and they have an alcohol and beverage license -- they have to charge you 7-percent tax. But if you go to any other restaurant in town that doesn't have a license, they only charge you 5 percent. It doesn't make sense. It's not fair, and I think its confusing to the traveler."

Stinson noted that while the state's restaurant association was opposed to any tax increase, in excess of 200 restaurants belong to his organization.

According to Ripley, Gov. King is "fine with the proposal" to tax all meals at 7 percent.

"It's hard to say what the end result is going to be," Ripley said.

Jerry Howland, president of Substantial Investments, an eight-unit D'Angelo sandwich shop franchisee based in Cumberland Center, Maine, said he opposes any increase in taxes to promote tourism.

"How ironic -- hit tourists up with additional taxes to encourage tourism," Howland said. "That's like me saying I am going to raise my prices so I can have more money to use to attract customers."

Other operators disagree. Dick McLaughlin, owner of the Lobster Pound restaurant in Lincolnville, said he believes all restaurants should be subject to the same tax rate.

"It's a sticky issue," said McLaughlin, who is a member of the Maine Restaurant Association and a director of the National Restaurant Association. "I have a liquor license, but I have many people who come to my restaurant and don't drink. I feel the tax should be 7 percent across the board. Any prepared food that is ready to eat should be taxed the same."

Grotton said he expects the meal-tax-equalization measure to pass.

"We win one, and we lose one," Grotton remarked.

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